CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
At the end of June 1997, L’Oréal’s Chairman and CEO, Lindsay Owen-Jones, called a
meeting to study the European shampoo market. Although L’Oréal had several
shampoo brands, among them Elsève, the shampoo market had never been one of the
company’s main priorities because margins were extremely narrow. In addition to that,
consumers perceived very few differences and therefore positioning and differentiating
a particular brand was a trying task.
Still, Lindsay Owen-Jones was convinced that L’Oréal’s Elsève brand had a lot of
potential. It was the market leader in France and the challenge was to make it a leader
throughout Europe. This would involve constant research on new formulas, targeting
new market segments, introducing new packaging, a new communications strategy and
maybe even changing the trademark, typography and colours.
L’Oréal couldn’t ignore the competitive environment that surrounded the firm.
Competitors were very active and aggressive. Procter & Gamble had recently
introduced Wash & Go, a 2-in-1 shampoo and conditioner. One of the meeting’s main
subjects of discussion was the high penetration rate that this product had achieved in its
introduction. Would the 2- in-1 concept be valid in the long term or was it just another
passing fancy? How should Elsève react to their competitor’s new product?
Neither could L’Oréal overlook the fact that there was serious competition from other
major brands –among them Pantene, the European market leader– which were very
international and increasingly using global marketing strategies. The question was
whether Elsève could become part of this international group of brands. Elsève’s
experience and the keys to its success in France were very likely points to keep in mind
when designing a global strategy for the rest of the world...
Copyright © 2000 CEMS.
This case was written by Josep Franch, Professor of Marketing at ESADE (Barcelona), and Neus
Quintana, Teaching Assistant. The authors would like to thank L’Oréal for their information and
assistance.
The case is intended to serve as a basis for discussion and not as an example of appropriate or
inappropriate management of a particular situation.
No part of this material may be reproduced without written authorisation from CEMS.
–1–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
L’Oréal: Company Background
L’Oréal was founded in 1907 by chemist Eugène Schueller when he invented the first
non-damaging synthetic hair dye. Since its beginnings L’Oréal’s policy has been one of
constant innovation, research and hard work in a field which would eventually come to
be known as marketing. The fact that its founder was a chemist still influences the
company’s research orientation, as witness the 300 new patents L’Oréal takes out every
year, enabling the company to launch 200 new products annually.
The first hair colour dyes were called Auréale. In 1909, Eugène Schueller created La
Société Française de Teintures Inoffensives pour Cheveux 1, which subsequently became
L’Oréal. The name was intended for products, not for the company itself. It is a
combination of two of the endings most used in French company names in the early 20th
century: “or” and “al”. “Or” was also the name of one of Auréole’s range of warmcoloured tints. Joining “or” et “al” produced the name L’Oréal, which was reminiscent
of the company’s first brand of hair colour: Auréale.
During the 1930s L’Oréal extended its product portfolio to include skin care and
suntanning products. Following World War II, the company diversified its products and
brands to gradually include all types of cosmetic products and conserve its position in
the distribution networks. Steady growth soon made L’Oréal a world class operation.
In 1997, L’Oréal was a leader in beauty products, selling 500 brands and 2,000 different
products (80,000 SKUs2) throughout the world. The company had more than 47,000
employees, and operations in 150 countries handled by 400 subsidiaries, 100 import
agents, 60 offices and 42 factories. L’Oréal’s export sales increased from 50% in 1987
to 80% in 1997. Although 58.6% of the company’s sales were made in Europe, there
was enormous growth potential in Asia, where sales amounted to only 6.8% of total
billings. Forecasts for future growth there were very optimistic (See Appendix 1 for
company figures). While still a European company, L’Oréal was becoming increasingly
global, as witness its acquisition of the US Maybelline brand in 1996, for which the
company paid $758 million.
The holding company Gesparal owned 53.7% of L’Oréal’s capital. Gesparal was 51%
owned by Madame Bettencourt –daughter of L’Oréal’s founder, Eugène Schueller– and
49% owned by Nestlé. The remaining 46.3% of L’Oréal’s shares were traded on the
Paris Stock Exchange, and through the London SEAQ and American Depository
Receipts in the United States.
1
2
Literally, The French Non-damaging Hair Dye Company.
Stockkeeping Units.
–2–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
How L’Oréal Was Organised
L’Oréal was divided into five functional areas, four divisions and three geographic
territories, all of which answered directly to Chairman and CEO Lindsay Owen-Jones.
The functional areas were Communications and Public Relations, Human Resources,
Finance and Administration, Manufacturing and Logistics (which supervised the
company’s 42 factories), and R&D which had more than 2,000 employees and a budget
equal to 5% of group sales.
The four divisions were organised on the basis of the four main distribution channels for
cosmetics and beauty care products: Salon Division, Consumer Division, Perfumes and
Beauty Division and Active Cosmetics Department.
The Salon Division (Coiffure) was world leader, with 25% of the market. 1997 billings
amounted to around 7,000 million French francs, up 12% over the previous year. The
division manufactured and marketed hair care products for use by professional
hairdressers and products sold exclusively through hairdressers’ salons. The leading
brands were Kérastase, L’Oréal Professionnel, Inné and Redken.
The Consumer Division (Produits Public) registered 31,700 million French francs in
sales in 1997, up 18.1% from a year earlier. This division handled all products and
brands distributed through mass-market channels, making L’Oréal products available to
the largest possible number of consumers (see Appendix 2 for the Consumer Division’s
organisation chart). The division was made up of several companies, each of which
marketed its own brands: L’Oréal Paris (Elnett, Plénitude, Elvive/Elsève/El’Vital,
Studio Line), Laboratoires Garnier (Neutralia, Belle Color, Ambre Solaire, Fructis,
Ultra Doux), LaScad (Dop, Fluoryl, Narta), Gemey Paris (Gemey, Kookaï, Naf Naf,
Club Méditerranée), Maybelline New York and Jade.
The Perfumes and Beauty Division (Parfums et Beauté) registered 15,600 million
French francs in sales in 1997, an increase of more than 12% over 1996 sales. The
division commercialised a range of up-market international brands selectively
distributed through perfume and cosmetics shops, department stores and travel retail
shops throughout the world. Leading brands were Lancôme, Biotherm, Helena
Rubenstein, Cacharel, Guy Laroche, Ralph Lauren, Paloma Picasso, Giorgio Armani
and Lanvin.
The Active Cosmetics Department (Cosmétique Active) registered 2,800 million French
francs in sales in 1997. It produced and marketed several brands of cosmetics, skin care
products and hair treatments, which were distributed to a select group of pharmacies.
The division’s leading brands were Laboratoires Vichy, Phas and La Roche-Posay.
The four divisions were independent of one another. Each division consisted of different
business units, among which there was also a certain degree of independence.
Occasionally, various businesses belonging to a single division competed with one
another. For example, Elsève and Fructis, produced by Laboratoires Garnier, competed
in the mass market. But this competition was actually encouraged by L’Oréal as it
allowed the group to sum up the sales of all its brands, making it the market leader.
–3–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
The different business units also competed among themselves when a new formula was
discovered and sometimes it was difficult to decide which business would benefit from
the discovery.
Outside of Europe L’Oréal was divided into geographic territories. The three territories
were North America, Latin America and Asia. The managers of each one of these
territories were in charge of all L’Oréal’s activities in their particular zone, keeping in
constant touch with the managers of the four operating divisions.
In 1997, L’Oréal was the world leader in hair colour, styling agents and home perms,
with market shares of 35.1%, 17% and 12.9%, respectively. It ranked second in salon
hair care products, with a world market share of 13.6%. Market shares of 8.4% in
shampoos and 8.2% in conditioners made L’Oréal the third-ranking company in the
world. Its position in 2-in-1 products was not as good, with a 5.2% market share,
making it the fourth ranking company in terms of sales.
In 1997, L’Oréal’s share of the European market amounted to 30%. Market shares in
Latin America and Eastern Europe were also fairly strong, amounting to around 15% in
both zones.
Corporate Culture
L’Oréal group employed 47,242 people, 38,308 of whom worked in cosmetics. 2,100 of
them were cosmetics researchers. L’Oréal’s corporate culture was rooted in dynamics,
teamwork, growth and research. As the company’s CEO put it:
“I am personally attached to this melting pot of individual dynamism,
openness and entrepreneurial skills. It’s what makes L’Oréal strong.”
(Lindsay Owen-Jones)
L’Oréal tried to make employee relations as personal as possible. The company cut
through red tape and kept paper work to a minimum, encouraging oral communication
through numerous meetings and team work. It was not surprising to note that many of
the company’s employees were on a first-name basis.
The company shaped loyalty and efficiency by making employees thoroughly
acquainted with the company, its structure, its management methods and objectives,
ensuring that they understood not only the company’s corporate culture but also the
many different cultures that made up the organisation.
L’Oréal looked for employees with an innovative, pioneering spirit, ready to travel to
new countries and open new markets. The company looked for people who were
independent, had initiative, creativity and were willing to take responsibility.
–4–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
L’Oréal: Elsève and other brands of hair care products
Elsève's history dates back to 1971 when a conditioner in small green bottles was
introduced. The conditioner was applied directly to the hair in order to revitalise it.
Indeed, the word “sève” means “sap” in French, referring to the hair’s natural oils.
L’Oréal's strategy was to start by targeting a specialised segment in order to create a
good brand image.
In 1972, L'Oréal launched the first Elsève shampoo, using the slogan: "The shampoo for
permed hair". When the brand had gained a solid foothold in France, it began going
international. The strategy was to introduce a product for the mass market, but with an
original, innovative formula. The company therefore developed “Balsam”, a new
formula which was used in a conditioner. Elsève thus managed to position itself as a
hair care product.
As of 1978 the company began to expand its range of Elsève products. This was not so
easy because the brand had such a strong position as a shampoo for damaged hair. At
this time, the market was experiencing very important changes: the frequency in the use
of shampoos increased dramatically and shampoos that were claiming to be gentle and
mild enough to be used every day became more appealing to consumers. Timotei, Ultra
Doux and Mixa Baby –a baby shampoo that became the market leader in France in those
days because it was seen as so mild that it could be used every day– became the most
popular brands. Elsève had a positioning as a shampoo for damaged hair and was seen
as too rich, too nourishing and too heavy to be used on a daily basis. When planning
Elsève’s brand extension, L’Oréal decided to offer separate products for frequent and
less-frequent shampooing, and later move into products that would produce a certain
desired effect subsequent to shampooing. This gave rise to products such as Elsève
Balsam, Elsève Fréquence, Elsève Volume and Elsève for oily hair. Although the brand
was introduced in several different countries, the brand name used was not always the
same. In the USA the brand was called Vive and in Germany it was called El’Vital, to
give just two examples. In the UK, it was called Elsève but the brand was to disappear
from the market within a few years.
The communications strategy was based on enhancing the value of each product,
emphasising its distinctive characteristics. The strategy focused on individual products
rather than on the umbrella brand, enabling the company to publicise all the
technological innovations applied to each product. Unfortunately, this very strategy kept
it from creating a strong, unified brand. The name of each product was better known
than the name of the brand in general.
In 1987, following a new product introduction by Timotei, the market registered a new
trend: active ingredients were in fashion and products started to introduce natural
ingredients and reason-whys in their product ranges. The Elsève product range was
renewed and L’Oréal decided to target new market segments. The idea was to offer
products for all types of hair, enriching the formula with a different active ingredient for
each hair type: Elsève Protein, Elsève Jojoba for long hair and Elsève Vitamines were
introduced. The company had to look for segments that would be large enough to be
profitable and, at the same time, make sure that the products complemented one another
so they wouldn’t cannibalise each other’s sales.
–5–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
In 1995, L'Oréal made two very important strategic decisions: The company launched
Elsève Multivitamines and added the Technicare line to the Elsève product range.
Elsève Multivitamines used a silicone-based formula that tested better than the
composition of Procter & Gamble’s silicone-based Pantene which at the time was the
European market leader. Launching Elsève Multivitamines enabled Elsève to increase
its target segments, addressing not only consumers with damaged hair or other hair care
problems but also people with normal hair. Moreover, the new formula allowed L’Oréal
to increase the prices of Elsève products by 20%. Increased revenue meant that Elsève
could spend more on advertising.
Until 1995 L’Oréal’s products had included the Technicare line, which was especially
for damaged hair. The products were fairly expensive, targeted at a highly specialised,
very specific market segment. There were three lines of Technicare products: Energance
(for permed hair), Rayonnance (for tinted hair) y Fortifiance (for damaged hair).
Lindsay Owen-Jones wondered if it was worthwhile to have two brands with such
similar characteristics, strategies and product positioning. He therefore decided to merge
the two to achieve a critical market share, maintaining the colours used in the
Technicare packaging to identify the different product lines. The brand name was
gradually changed: first it was called Energance Elsève, then it became Elsève
Energance and finally Elsève for permed hair. The same process was also applied to the
other two product lines. Internally, the switchover was handled as it would have been
had L’Oréal acquired an external company. With the addition of Technicare, Elsève
managed to acquire 10% of the hair care market.
Sales increased and so did prices, due to the use of new formulas. Billings went up and
the brand was able to increase its advertising budget. This enabled Elsève to address
more segments with differentiated messages, thereby further increasing its market share.
Elsève/Vive/El’Vital (see Appendix 3 for the Elsève product range) aimed to further
strengthen its competitive position by adopting three key strategic decisions: address all
possible market segments, add highly innovative technical features to the "stars" of the
product range and reinforce the product image by making the brand name more visible
on packaging. The product range was launched in the UK in 1997 under the brand name
Elvive (see Appendix 4, for Elvive products in the UK).
L’Oréal also commercialised other brands of hair care products, among them Studio
Line and P’tit L’Oréal. It also marketed Ultra Doux, Fructis and Neutralia through
Laboratoires Garnier, and the J. Dessange brand through LaScad. L’Oréal had launched
Formula Homme as a brand for men, hoping to break into a market segment which was
underexploited but had a great deal of growth potential, and it was later re-branded as
Progress Homme and reintroduced under Elsève’s umbrella brand. Competing with a
number of different L'Oréal brands enabled the company to position its products in
more market segments and compete for market leadership by adding together sales for
its different brands. Although there was a bit of an overlap between segments, product
cannibalism was avoided by designing different positioning strategies: every single
product invested in creating its own personality. Consumers identified each and every
one of the brands but did not relate them to L’Oréal.
–6–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
The Hair Care Products Industry
With European sales of 28,865 million French francs in 1997, hair care products ranked
among the leading branches of the personal grooming and beauty care industry. 1997
figures represented a 4.9% increase in volume but a 6.2% increase in billings.
Considering that these types of products were aimed at a market that was in its maturity
stage in terms of both penetration and use, opportunities for future growth would
depend on creating added value. Hair care products could be divided into three main
categories: shampoos, conditioners and styling agents, such as sprays, mousses and gels
(See Appendix 5 for a breakdown of hair care product sales).
The amount of shampoo used in European countries was on the rise. The introduction of
shampoos for frequent use and the better evolution of the product formulas in terms of
usage quality and mildness helped increase sales tremendously in the 1980s. In 1989
Procter & Gamble launched Vidal Sassoon Wash & Go, the first 2-in-1 shampoo and
conditioner, which soon led the UK market. The silicone-based 2-in-1s were
particularly popular with men because the combined product made shampooing faster.
Silicone formulas were a technological breakthrough that produced hair which was
more shiny and less tangled after washing.
During the 1990s it was discovered that, although silicone was a fast-acting hair
conditioner, it was not nourishing. As a result, many brands changed their formulas, and
other ingredients were added. In 1993, Pantene launched a shampoo enriched with ProVitamine B5. A major advertising campaign soon placed it at the head of the UK
market and led many other brands to revise their formulas. They began searching for
new, more sophisticated formulas that introduced cosmetic ingredients that perfumed
the hair or made it shiny as well as cleaning it. Other brands that were successful with
this more cosmetic approach were L'Oréal's Elsève, Elvive and El'Vital, as it was
known in different countries, and as of 1996 Laboratoires Garnier's Fructis brand.
Fructis included fruit acids, fructose and vitamins, ingredients which were very popular
with consumers, who associated them with healthy, shiny hair. This constant striving for
improved products had revitalised the entire hair care products industry. In 1997 another
technological breakthrough was about to come: a formula that combined both silicones
and polymers.
While most consumers used shampoo, the same could not be said of conditioners. In
1997 conditioners were used by only 16.7% of the potential European market, therefore
they were far from being a standard product.
The introduction of 2-in-1s obviously affected the sale of conditioners. Consumers liked
the idea of getting both shampoo and conditioner in a single bottle and 2-in-1s began
cannibalising conditioner sales. But when 2-in-1 sales began to decline, conditioner
sales started picking up because 2-in-1 advertising's emphasis on the conditioning agent
had impressed consumers. People were becoming receptive to the idea of conditioning
agents and manufacturers began promoting the idea of a stronger conditioner to be used
only once a week. The most recently introduced conditioners by Pantene, Elvive,
Organics, and other brands made consumers aware of the importance of using
conditioning products to ensure healthy hair.
–7–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
Styling agents were brought to market in the 1980s when more elaborate hairstyles
began to be popular. Many of these styles meant that some special product had to be
used so that people with all types of hair could wear their hair in the latest fashion. Use
of styling agents increased steadily and manufacturers began to introduce them in spray
and gel forms. From 1990 onwards, the popularity of elaborate hairstyles began to
decline in the UK, giving way to a more natural look that did not require so much care.
The rest of Europe adopted this more natural look as of 1992, causing sales of styling
agents to drop sharply. It is also important to note that in 1992 most European countries
were in a recession period and consumers stopped using styling agents because they
considered them an unnecessary expense that could be eliminated when money was
scarce.
Mousses were the styling agent least affected by declining sales. They were the product
that adapted best to any kind of hairstyle and were less dependent on fashion fads. Gels
were also able to hold their own thanks to an increasing tendency among young people,
particularly adolescents, to adopt a more extravagant look. In those days manufacturers
were trying to win back young people and reach new age groups. According to an
article published in LSA Le Journal de la Distribution, thirty to fifty year olds were
particularly interesting targets because they were so difficult to satisfy: women in this
age group considered themselves too old to use styling agents and too young to use
standard hair sprays. Therefore the slowdown in styling agent sales might also be partly
due to their extremely young product image.
The molecules discovered and added to shampoos and conditioners were also added to
styling agents. Although styling agent sales were on the decline in terms of both volume
and value, manufacturers saw the increase in the sale of gels as an encouraging sign.
However, they were trying to redirect their advertising message and no longer talk only
about using styling agents in order to be able to wear a particular hairstyle, but also
attempted to explain to consumers that styling agents could also make their hair more
attractive.
Among L’Oréal's most important competitors were multinationals like Procter &
Gamble, Unilever and Henkel, to mention only a few (See Appendix 6 for data on the
company's leading competitors).
As leader of the world shampoo and 2-in-1 market, Procter & Gamble embarked on a
strategy of rapid growth in 1985, acquiring other companies in order to increase their
product portfolio, not only in the hair care products market but also in cosmetics.
Procter & Gamble’s goal was to create and maintain customer loyalty to its brands,
offering quality and value in innovative products backed by heavy investments in
advertising. Research and development and advertising were the pillars of Procter &
Gamble’s strategy to develop truly global brands, such as Pantene Pro-V, Vidal Sassoon
Wash & Go and Head & Shoulders.
Brand names for hair care products had also been one of the pillars of Unilever strategy,
aimed at maximising the value of both established and new brands throughout the world
and making the company more global than ever. Organics was Unilever’s most
successful hair care product. It was positioned as a shampoo that nourished hair from
the roots to the tips, thanks to an ingredient called Glucasil Complex.
–8–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
The brand was first introduced in Europe and subsequently in other regions. It was then
available in seventy countries, with variations in order to adapt the product to consumer
habits in the different markets.
In 1995, Henkel purchased Schwarzkopf and became another major player in the hair
care market. Although Henkel enjoyed a solid position in Europe, it was little known in
North America, The acquisition of Schwarzkopf also opened the door to interesting
business opportunities for Henkel in Latin America and Southeast Asia.
The shampoo market
Shampoos were used by 83.5% of the population, although there was little brand loyalty
and it was extremely difficult to create any. There was a widespread belief in Europe
that changing shampoos frequently was good for the hair because otherwise it would get
used to a particular shampoo and the results would not be so satisfactory. As a
consequence, manufacturers –who could not explain the origin of these beliefs– had
serious problems getting consumers to repeatedly buy the same brand. The main
European markets were Germany, France, UK, Italy and Spain (see Appendix 7 for
market volumes and Appendix 8 for Elsève distribution coverage).
The hair care product market was heavily influenced by the evolution of consumer
habits and technology. In the 70s, consumers wanted washing frequency, later they
wanted to have more conditioning and detangling, and in the late 90s they wanted
shinier hair. Product formulas had also evolved a great deal: Manufacturers launched
new products with new qualities, which consumers then demanded. Increasingly heavy
investments in marketing and new product development had gradually shortened the life
cycle of the products which had not adapted themselves to the market. In contrast,
Elsève was a successful example of brand renovation and long product life with
absolutely no sign of decline because it continuously offered new products in its own
range. Still, manufacturers were continually launching new products and brands, which
was a costly activity, in the hopes of making a strong and immediate impact on the
market.
The hair care product market had been traditionally female. However, during the 1990s
manufacturers began increasingly addressing two segments with a high growth
potential: the male segment and the children’s segment. Many companies had launched
specific lines for men, although not always successfully, as was the case with L’Oréal’s
Formule Homme line. A number of companies had tried presenting their products as
unisex brands, among them Procter & Gamble’s Wash & Go and L’Oréal’s Studio Line.
In addition, the children’s market was particularly interesting in France, Germany and
Italy. L’Oréal’s LaScad led the French market with P’tit Dop, competing with other
products that were directed exclusively at children and featured fun packaging and
special fragrances. The German market for children’s shampoos doubled between 1992
and 1997, with brands such as L’Oréal’s Laboratoires Garnier and Procter & Gamble’s
Vidal Sassoon for Kids. The children’s market in Italy began really taking off in 1996,
with the introduction of L’Oréal’s Piccol’o.
–9–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
People were washing their hair more frequently than ten years ago. Europeans washed
their hair on an average of 3.5 times a week. Expectations of clean, soft hair had given
way to demands for shiny hair with extra body. Demand for cosmetic features had
forced manufacturers to enhance their products with innovative value-added features in
order to position them as high quality products and increase their market shares. The
principal innovations were polymers, silicones, provitamin B5 and Ceramide-R.
Elsève’s competition
Elsève competed with other brands of cosmetic shampoos which also had such broad
product ranges that they could reach all market segments. In order to do this,
manufacturers basically used TV commercials as a way to position their cosmetic
shampoo brands. Elsève’s most important competitors were Pantene, Organics, Timotei
and Wash & Go (See Appendixes 9, 10 and 11 for market shares and average prices of
the leading brands in selected countries).
Most brands tried to position themselves carefully in order to differentiate themselves
from their competitors. As in any other industry, one of the problems was that there
were some competitors that were followers of the major leaders. They waited for the
leaders to introduce some new innovation and then launched similar products at a lower
price.
Pantene led the market for cosmetic shampoos and ranked second to Elsève in
conditioners. Manufactured by Procter & Gamble, Pantene’s formula was based on ProVitamine (B5). Pantene's technological progress was due to constant research and
innovation, which were key factors for success in this branch of industry. Pantene
advertising sought to reinforce its brand image, positioning itself as “specialists in hair
care”. Its slogan was, “Hair so healthy it shines”, with Pro-Vitamine (B5) the reasonwhy. Pantene commercials demonstrated how the vitamin acted from the roots to the
tips of the hair. Commercials usually featured “slice of life” scenes with which a broad
segment of the public could identify. Pro-Vitamine marketed itself as the solution for
consumers’ hair problems.
Wash & Go was another important Procter & Gamble brand. At first its advertising
message was that Wash & Go was fast and practical, but hair care and other features
had gradually been introduced. The brand usually used active, sporty-looking models in
order to reach a mixed male/female market segment.
Organics was a Unilever brand that communicated the message that healthy hair was
vitally important and must be very well cared for. The product name had connotations
of natural animal or vegetable ingredients. Its principal ingredient was Glucasil, which
nourished the hair. Knowing this, one can understand its ads, which depicted hair as
something that had its roots in the earth. Organics attempted to position itself as a
shampoo that made hair strong, healthy and shiny. At first Organics’ ads contained an
essentially symbolic message, but this had gradually been revised and shampooing
scenes added. The target public was exclusively female and more interested in cosmetic
features than in healthier hair.
–10–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
Unilever also marketed Timotei, which had traditionally related shampoo with nature.
Its message was that the hair was nourished and protected thanks to natural ingredients
which made it more beautiful, stronger and resistant. Timotei was directed excusively at
women and did practically no advertising for its conditioners. Timotei’s advertising was
becoming increasingly global and institutional, emphasising the brand rather than the
individual products. Its advertisements usually did not mention why the products give
users such strong and shiny hair.
Although it was marketed by one of the L’Oréal companies, Laboratories Garnier, Ultra
Doux had to be also considered one of the Elsève competitors. Ultra Doux was
positioned as the ultra-mild shampoo, targeting all the people in the family. It was a
shampoo for frequent use, made of natural ingredients. Its advertising message was
“Extrême douceur puisée au coeur des plantes”3.
Everyone in the industry invested heavily in advertising. Advertising and sales were
closely correlated: the more advertising was done, the more products were sold. The
main advertising medium was television, followed by press advertising. Since 1995
shampoo advertising had been increasing at a slower pace, unlike advertising for hair
colouring and permanents, which had registered an increase (See Appendix 12 for the
advertising budgets of the leading brands).
A constant technological challenge
Research and development was essential in order to discover new ingredients which
could be added to product formulas, giving them an extra value that would be perceived
by consumers and enable the manufacturer to secure a larger share of the hair care
products market.
But not just any innovation translated to an increased market share. Industry
manufacturers had to find ingredients that gave consumers added value and enabled
them to differentiate a particular product from its competitors. Market research showed
that after shampooing consumers wanted their hair to be soft –detangled and fluffy– and
smell nice, and that the trend for healthy and shiny hair had gained popularity.
All shampoos had some more or less common ingredients, such as water, perfume, and
cleansing agents. Before 1994, a polymer compound was added to the product in order
to revitalise the hair. Polymers acted on the most damaged parts of the hair fiber,
revitalising and restoring its health. But this type of molecule was more revitalising than
cleansing, so when used by people with normal –or only slightly damaged– hair the
result was hair that was somewhat lank and rough, which consumers did not like.
3
“Extreme mildness coming from the heart of the plants”.
–11–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
From 1994, L’Oréal developed a silicone-based formula that replaced polymers.
Silicones treat each stand of hair individually, leaving it very soft and easy to comb as it
was thoroughly detangled. Consumers noticed this immediately and Elsève successfully
entered the normal hair segment of the market. But silicone also had a drawback: it was
not nourishing. By combining polymers and silicones, L’Oréal was able to profit from
the advantages of both ingredients: the nourishing action of polymers and the soft,
detangled hair that was produced by silicone. Combining the two ingredients in the
shampoo formula gave L’Oréal a major advantage over its competitors.
Whenever there was a technological innovation industry competitors were faced with an
alternative: they could either launch a new product concept that contained the new
ingredient or they could introduce the new ingredient in an already-existing product and
inform consumers of the change through advertising and new package designs.
But introducing an innovation could sometimes be a risky business. If it was not as
successful as hoped it could affect the entire brand image. So when L’Oréal was not
absolutely certain of the outcome it introduced new formulas under a secondary brand
name. L’Oréal Paris was the group’s flagship brand. It focused on the long term and
always sought sustainable product concepts because the L’Oréal brand was too highly
valued to risk launching anything whose success was not assured.
These were the sorts of issues that the marketing team at L’Oréal was facing in their
strategic design to become the European shampoo market leader…
–12–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
Appendix 1: Key figures for L’Oréal
L’Oréal Group
Net sales (million FF)
Operating profits (million FF)
Net profits (million FF)
Number of employees
Earnings per share (FF)
1993
1994
40,163
4,493
2,936
32,300
44.4
47,624
5,352
3,472
38,972
46.2
32,238
3,711
38,858
4,452
1995
1996
1997
53,371
5,886
3,796
39,929
50.0
60,347
6,632
4,225
43,158
55.2
69,120
7,762
4,739
47,242
62.2
43,280
4,649
48,988
5,120
56,163
5,878
Cosmetics & Toiletries
Net sales (million FF)
Operating profits (million FF)
Year 1997
Net Sales % of total
(million FF)
sales
% growth
1994/1997
Western Europe
North America
Asia-Pacific
Rest of the world
40,472
15,872
4,730
8,047
58.6%
23.0%
6.8%
11.6%
25.5%
171.0%
33.9%
34.3%
Total
69,121
100.0%
45.1%
Regional shares
(% value)
North
Latin Western Eastern
Africa &
America America Europe Europe Asia M. East Australasia
Colorants
28.2%
Conditioners
3.9%
Home perms
4.0%
Salon hair care pdts’ 8.2%
Shampoo
4.4%
Styling agents
5.5%
2-in-1s
1.8%
35.7%
3.9%
6.6%
48.3%
3.7%
27.8%
0.3%
54.8%
24.1%
33.4%
27.4%
18.4%
30.4%
15.4%
22.3%
19.3%
11.9%
0.2%
15.2%
12.5%
8.6%
31.0%
10.2%
2.6%
19.2%
8.7%
24.3%
7.5%
28.9%
–
–
48.3%
–
3.5%
–
Total hair care
14.4%
30.2%
14.5% 1.4% 11.8%
4.8%
9.3%
Source: Euromonitor, based on company records
–13–
4.6%
0.4%
2.5%
9.9%
0.4%
1.4%
0.1%
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
Appendix 2: Organisation chart
–14–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
Appendix 3: Elsève product range
–15–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
Appendix 4: Elvive product range for the United Kingdom
–16–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
Appendix 5: Hair care industry data
Industry sales
Western Europe
Shampoos
Conditioners
Hair sprays
Mousses
Gels
Industry total
Million FF
1996
1997
12 068
13 194
4 359
4 600
6 870
6 993
2 173
2 249
1 607
1 829
27 077
28 865
Source: AC Nielsen
–17–
Million units
1996
1997
853
912
247
261
410
411
120
123
97
108
1 726
1 816
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
Appendix 6: Financial highlights for L’Oréal’s main competitors
Procter & Gamble
Net sales (million $US)
Operating profits (million $US)
Net profits (million $US)
Number of employees
Earnings per share ($US)
1994
1995
30,385
3,670
2,211
103,000
1.54
33,482
4,244
2,645
96,500
0.85
5,912
570
6,507
728
1996
1997
35,284 35,764
4,815
5,482
3,046
3,415
99,200 106,000
2.14
2.43
Cosmetics & Toiletries
Net sales (million US$)
Operating profits (million US$)
6,914
966
7,108
1,066
1996
1997
Source: Euromonitor from company records
Unilever
Net sales (million £)
Operating profits (million £)
Net profits (million £)
Number of employees
Earnings per share (£)
1993
1994
1995
27,863 29,666 31,516 33,522 29,766
1,944
2,526
2,526
2,874
2,386
1,296
1,559
1,473
1,610
3,335
294,000 304,000 308,000 306,000 287,000
17.36
20.90
19.66
21.47
44.55
Personal Grooming Products
Net sales (million £)
Operating profits (million £)
4,018
343
4,433
472
1993
1994
13,867
550
385
40,470
3.20
14,069
671
464
40,590
3.35
1,410
n.a.
1,404
n.a.
5,986
658
6,940
770
6,852
801
1996
1997
14,198
725
488
41,728
3.35
16,301
1,011
555
46,377
4.00
20,065
1,373
1,127
53,753
5.35
1,377
n.a.
2,677
n.a.
2,972
n.a.
Source: Euromonitor from company records
Henkel
Net sales (million DM)
Operating profits (million DM)
Net profits (million DM)
Number of employees
Earnings per share (DM)
1995
Cosmetics & Toiletries
Net sales (million DM)
Operating profits (million DM)
Source: Euromonitor from company records
–18–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
Appendix 7: Total hair care sales by country
(Million US$)
US
Germany
France
UK
Italy
Spain
Netherlands
Greece
Sweden
Switzerland
1993
1997
5,770
2,063
1,791
1,055
1,037
430
388
166
217
178
7,177
2,287
2,072
1,328
1,055
529
438
291
258
218
Source: Euromonitor
–19–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
Appendix 8: Distribution coverage
Distribution coverage (June 1997)
Market total
Numerical distribution
Weighted distribution
Elseve / Elvive / Elvital
Numerical distribution
Weighted distribution
France
UK
Germany
100,0
100,0
96,0
100,0
86,0
100,0
99,0
100,0
30,0
91,0
34,0
89,0
Spain
96,0
100,0
n/a
n/a
Source: AC Nielsen /IRI Infoscan
Note:
Numerical distribution measures the percentage of outlets that sell a particular brand or
a product category. Weighted distribution is the market share (in value) of these outlets
in the overall product category.
–20–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
Appendix 9: Market shares for the main shampoo brands
Market shares (%)
Volume
Western Europe
1995
Alberto
1,2
1996
1,3
VO 5
Value
1997
1,2
1995
1,2
1996
1,5
0,7
Beiersdorf
Nivea
1,3
0,8
2,9
2,9
2,9
2,8
2,7
2,6
2,8
2,8
2,9
2,7
2,7
2,6
Bristol Myers
Clairol Herbal Essence
Colgate
1997
0,4
0,5
0,4
0,4
4,7
5,0
4,6
3,6
3,6
3,3
Gard
0,8
1,1
1,0
0,6
0,7
0,6
Palmolive
2,6
2,8
2,6
1,6
1,8
1,7
Respons
0,9
0,9
0,8
1,0
1,0
1,0
7,8
8,6
9,0
6,8
6,9
6,9
Henkel
2,7
2,7
2,8
2,6
2,4
2,4
Poly Kur
1,4
1,4
1,3
1,2
1,1
1,0
Schwarzkopf
5,1
5,9
6,2
4,2
4,5
4,4
Schauma
2,9
3,6
3,9
2,1
2,4
2,5
Glem Vital
0,7
0,6
0,6
0,5
0,5
0,5
Gliss
0,6
0,7
0,7
0,6
0,7
0,6
3,0
2,6
2,5
3,7
3,3
3,2
Henkel / Schwarkopf
Johnson & Johnson
L'Oréal
20,2
20,2
21,6
19,3
19,3
21,4
Elsève
5,9
6,2
7,3
6,1
6,2
7,6
Studio Line
1,0
0,7
0,5
1,0
0,7
0,5
P'tit L'Oréal
1,1
1,0
0,9
0,8
0,8
0,8
Ultra-Doux
4,2
4,4
4,4
3,6
3,8
3,9
Fructis
0,0
0,3
1,7
0,0
0,3
1,8
Neutralia
1,5
1,3
1,1
1,5
1,3
1,2
J. Dessange
1,5
1,4
1,1
1,7
1,6
1,3
Procter & Gamble
19,2
19,3
19,3
23,2
23,2
23,4
Vidal Sassoon
5,4
4,1
3,1
6,5
4,9
3,7
Pantene
8,9
10,7
11,8
11,0
12,7
14,0
Head & Shoulders
2,3
2,4
2,7
3,3
3,6
4,1
Shamtu
0,9
0,5
0,3
0,6
0,3
0,2
Petrol Hahn
1,1
1,1
0,9
1,0
0,9
0,7
1,3
1,1
1,1
1,5
1,2
1,1
Revlon
Unilever
13,6
12,9
12,2
14,0
13,4
12,5
Timotei
4,8
4,2
3,6
4,5
3,9
3,3
Sunsilk
0,7
0,4
0,3
0,7
0,4
0,3
Organics
3,1
4,2
4,3
3,7
5,0
4,8
Clear
1,2
1,0
1,0
1,2
1,0
1,1
Dimension
0,7
0,6
0,7
0,5
Wella
2,7
2,7
3,1
3,1
3,1
3,5
Wella Balsam
0,6
0,5
0,6
0,8
0,6
0,7
Crisan
0,8
0,8
0,7
1,0
0,9
0,8
Source: AC Nielsen and IRI Infoscan
–21–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
Appendix 10: Market shares in selected countries
Market shares 1997
(% in volume and value)
Alberto
VO 5
Beiersdorf
Nivea
Colgate
Gard
Palmolive
Respons
Henkel / Schwarkopf
Henkel
Poly Kur
Schwarzkopf
Schauma
Glem Vital
Gliss
Johnson & Johnson
L'Oréal
Elsève / Elvive / Elvital
Studio Line
P'tit L'Oréal
Ultra-Doux
Fructis
Neutralia
J. Dessange
Procter & Gamble
Vidal Sassoon
Pantene
Head & Shoulders
Shamtu
Petrol Hahn
Revlon
Unilever
Timotei
Sunsilk
Organics
Clear
Vasenol
Dimension
Wella
Wella Balsam
Crisan
France
vol. val.
0,2
0,1
7,7
0,2
0,1
5,5
6,8
0,7
1,8
1,8
4,7
0,6
1,9
1,9
UK
Germany
Italy
Spain
vol. val. vol. val. vol. val. vol. val.
4,8 4,8
2,3 2,3
10,0 9,7
0,2 0,1
10,0 9,7
0,2 0,1
0,1 0,1 4,9 3,5 2,9 2,3 0,3 0,3
4,3 2,8
0,1 0,1
2,3 1,7
0,6 0,7
2,1 1,7 23,5 18,2 4,0 3,3 2,4 2,4
4,5 3,9 4,0 3,3 2,4 2,4
4,5 3,9
1,7 1,7
2,1 1,7 19,0 14,2
16,5 11,8
0,3
4,7
8,6
6,3
0,3 2,0 1,9
6,5 0,2 0,3 5,6 6,3 6,2 7,1
8,6 11,1 11,9 26,4 26,4 11,4 11,6
6,4 5,9 6,5 7,7 7,7 5,4 5,5
1,1 1,0
1,9 2,1
3,6 3,3 9,6 8,9 5,1 5,1
1,8 2,1 0,5 0,6
2,3
0,8 0,8 0,3 0,3
57,1 59,3
10,5 11,1
1,8 1,9
2,9 2,4
8,0 8,0
7,4 7,9
2,8 3,1 2,3
5,6 6,9
10,5 12,5 25,6 31,8 18,5 20,7 18,5 22,0 27,0 33,2
1,7 1,8 4,7 6,0 3,5 3,8
6,9 8,1
2,8 3,2 14,2 17,1 13,3 15,0 16,9 20,3 13,9 17,0
1,8 3,8 6,7 8,8 0,5 0,9
6,2 8,1
1,1 1,0
4,2 3,8
1,6 1,9
10,3 9,2
8,4 8,5 15,2 15,1 7,8 7,3 12,9 14,0 12,0 12,9
3,4 3,0 3,7 3,6 5,1 4,2 1,5 1,2 6,3 7,6
1,2 1,2
2,6 2,9 8,7 8,8 2,8 3,0
3,0 3,4
1,2 1,5
6,6 7,9
2,6 1,9
4,7 4,8
0,1 0,2 5,7 5,5 4,8 5,9 1,0 1,1 1,9 1,8
0,1 0,2
1,7 1,5
2,7 3,3
Source: AC Nielsen and IRI Infoscan
–22–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
Appendix 11: Retail prices in selected countries (figures in French francs)
Average retail prices (FF)
Beiersdorf
Nivea
Henkel
Poly Kur
Schwarzkopf
L'Oréal
Elsève/Elvive/El'Vital
Fructis
Ultra Doux
Procter & Gamble
Vidal Sassoon/Wash & Go
Pantene
Head & Shoulders
Unilever
Timotei
Organics
France
Germany
13,4
UK
Spain
13,6
12,4
12,1
10,6
14,8
14,8
14,5
14,8
13,8
15,6
18,0
15,2
17,3
14,5
14,7
15,7
28,4
15,3
15,8
23,7
21,2
21,2
23,1
17,4
17,8
18,8
12,0
15,2
11,7
15,4
17,4
17,9
17,6
16,3
Source: AC Nielsen and IRI Infoscan
–23–
CEMS Case Study
“L’Oréal (A): Fighting the Shampoo Battle”
Appendix 12: Share of voice in selected countries
Share of voice 1997 (%)
Europe
Beiersdorf
Nivea
Other brands
Henkel
Schwarzkopf
Other brands
L'Oréal
Elsève / Elvive / El'Vital
Fructis
Ultra Doux
Other brands
Procter & Gamble
Vidal Sassoon/Wash & Go
Pantene
Head & Shoulders
Unilever
Timotei
Organics
Other brands
Other manufacturers
Alberto Culver
Bristol Myers
Colgate
Eugene Perma
Johnson & Johnson
Revlon
Wella
Industry expenditures (million FF)
France
UK
2,1
0,3
Spain
0,1
0,7
15,0
5,7
2,3
1,0
9,3
7,8
4,8
7,8
8,9
2,6
4,3
3,5
15,6
12,2
22,7
14,2
10,9
3,6
4,3
5,1
14,0
10,8
5,2
23,1
10,6
11,5
0,5
5,0
0,1
4,8
20,9
6,9
0,8
12,6
6,6
6,6
24,9
8,4
5,0
25,5
5,9
2,4
6,6
3,1
2,3
5,5
0,1
18,0
7,8
2,0
3,9
0,8
0,6
0,3
1,5
1,2
0,3
3,5
8,7
4 182,6
614,2
–24–
Italy
7,3
1,1
4,0
1,6
Source: Adex (AC Nielsen)
Germany
8,8
4,9
5,9
3,8
0,3
0,1
0,3
0,4
5,3
5,1
4,8
0,4
4,4
1,5
2,1
828,6
865,8
837,6
723,7
2,5